Heavy military build-up on both sides of Sudan's disputed oil region of Abyei is causing serious concern that the fragile north-south peace deal may be in danger.

Government forces and former southern rebels clashed in Abyei town last week in some of the worst fighting since a 2005 peace agreement that ended their 20-year civil war. Tens of thousands of people were displaced in the clashes and dozens of soldiers were killed.

The foreign minister, Deng Alor, confirmed today that both parties had since sent reinforcements to the area, which is on the border between north and south Sudan, but said there were ongoing talks to defuse the situation.

The clashes have raised alarm bells among the international community, and prompted the US to suspend talks with Sudan on normalising relations that have become frayed over the separate conflict in Darfur and international terrorism. Richard Williamson, the US envoy to Sudan, told reporters in Khartoum on Tuesday that he was "sad and disappointed" by the fighting in Abyei.

"At this point, the leadership of either side is not interested in meaningful peace," he said. "I won't be part of a sham peace that won't change the situation."

The 2005 peace deal led to the formation of a unity government between the northern, Arab-dominated regime of President Omar el-Bashir, and the Sudan People's Liberation Army (SPLA), which represents the Christian and animist south. But three years on there has been no agreement on the border or administration of Abyei, which supplies around half of the country's 500,000 barrels of oil a day.

The point of demarcation is especially crucial, as the semi-autonomous south Sudan will vote on whether to secede from the north in a 2011 referendum.

Salva Kiir, the leader of south Sudan and the country's first vice-president, said he had asked Bashir to withdraw government troops from around Abyei.

"We will not fight them … as long as there is a will to peace, there will be no war," he said.

A source close to Kiir, who is not authorised to talk to the media, told the Guardian that relations with Bashir were good. But he said elements in the northern military, and in the southern administration, were "trigger-happy", which was complicating the situation.